The Advantages of Investing in Commercial Mortgages
The Advantages of Investing in Commercial Mortgages
This article will discuss the advantages of investing in commercial mortgages and why it is a viable option for investors.
Commercial mortgages are a type of loan that financial institutions offer businesses to buy or refinance commercial properties.As an investor, investing in commercial mortgages without having to actually buy the property has several advantages if you are looking for alternatives to the stock market. Like an exchange-traded fund (ETF), your capital (usually a minimum of $5000) is pooled with other investors money to loan privately to commercial home buyers. This article will discuss the advantages of investing in commercial mortgages and why it is a viable option for investors.
1. Stable Income Stream
One of the most significant advantages of investing in commercial mortgages is the stable income stream it generates. Commercial mortgages typically have a more extended repayment period than residential mortgages, which means that investors receive monthly payments for an extended period.
The stability of the income stream makes it an attractive investment option for investors seeking a regular source of income.
2. Higher Interest Rates
Commercial mortgages usually have higher interest rates than residential mortgages, making them a more profitable investment option. Lenders charge higher interest rates on commercial mortgages to compensate for the higher risk of lending to businesses.
Also, commercial properties generate more income than residential properties, making it easier for borrowers to meet their mortgage payments, reducing the risk of default.
3. Lower Risk of Default
Commercial mortgages have a lower risk of default than residential mortgages. Businesses that borrow to purchase or refinance commercial properties are more financially stable than individuals who borrow to purchase a residential property.
Commercial properties generate income, reducing the risk of default, and businesses have a better track record of meeting their financial obligations than individuals.
4. Diversification
Investing in commercial mortgages provides diversification, reducing the risk of an investor's portfolio. Diversification is a strategy that involves investing in different asset classes to reduce the risk of loss. Commercial mortgages are an alternative asset class that provides diversification for investors.
5. Security
Commercial mortgages are secured by commercial properties, which reduces the risk of loss for investors. In case of default, the lender can foreclose on the property and sell it to recover the loan amount.
Commercial properties are usually more valuable than residential properties, increasing the chances of recovering the loan amount in case of default.
6. Inflation Hedge
Putting money into commercial mortgages can protect against the effects of rising inflation. Inflation causes the worth of money to decrease over time, which can negatively impact investors' buying power.
However, commercial mortgages offer a set interest rate, providing investors with a steady income source despite inflation. Furthermore, inflation can increase the property's value based on the mortgage, giving investors the potential to earn even more on their investments.
7. Tax Benefits
Investing in commercial mortgages has several tax benefits. The interest paid on a commercial mortgage is tax-deductible, reducing the investor's tax liability.
Additionally, commercial properties offer depreciation deductions, reducing the investor's taxable income. The tax benefits associated with investing in commercial mortgages make it an attractive investment option for investors seeking to reduce their tax liability.
THE BOTTOM LINE
Investing in commercial mortgages is an excellent way for investors to earn a regular income while diversifying their portfolios and reducing risk. However, investors should conduct thorough due diligence before investing in commercial mortgages to understand the risks associated with this investment option.
Level Up Mortgages is a mortgage broker team focused on helping the self-employed, new immigrants, non-residents, and investors access the best rate and alternative lending in Canada. We have been nominated for the best up-and-coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.
See What You Qualify For Or Contact Paul To Get Your Pre-Approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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